Barclays buys Kensington Mortgages

Barclays have announced they are purchasing Specialist Lender Kensington Mortgages, subject to regulatory approval for a price around £2.3bn. It is one of the more interesting deals in the market of recent years.

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The agreement was announced today. It is not that unexpected, Kensington is currently owned by Private Equity firms Blackstone and Sixth Street. They put Kensington on the block around November last year and it was an auction-style sale. By January this year, it was commonly speculated that it was down to Barclays or Starling Bank.

It was speculated early on that Kensington could be broken up, the lender in one part, the mortgage book in the other. Barclays has agreed to pay £2.3bn although that may be adjusted depending on the value of their mortgage book once the deal closes.

The only hurdle the deal currently faces is regulatory approval although that does not appear likely to cause an issue.

Who is Kensington?

I know them well, I spent 10 years in the Sub Prime mortgage industry from 2000-2010. I was with Mortgages PLC, another specialist lender and Kensington was a key competitor.

Ultimately and not surprisingly Mortgages PLC did not make it through the 2008 financial collapse whilst Kensington limped through it, came out the other side and went to do very well as clearly indicated by this sale to Barclays.

After suspending lending in 2008 they returned to the market in 2009 and did very well by all accounts in the following years. In 2015 they were purchased by Private Equity firms Blackstone and TPG which created a global credit platform Sixth Street.

By 2018 they were a billion pound a year lender.

Kensington also started a mortgage servicing company that looked after mortgage books for other lenders, Capstone Mortgage Services. It was later rebranded as Acenden.

What are Barclays buying?

Everything is the bottom line. They will take Kensington as a specialist lender, all staff, the servicing company Acdenden and the existing mortgage book. Currently, it is suggested they managed around £8.7bn of mortgage lending. That is their own at £2bn and the remainder belongs to other lenders who use Acenden to service their mortgages.

So it's a lock, stock and barrel purchase.

Barclays report that they intend to operate Kensington as is, a separate lender in its own right in the specialist market, just as it always has.

Benefits for Barclays?

Barclays are not and never has been a specialist lender so this is a bold move by them to become a lead player in the specialist market through this purchase. Many of the larger lenders in the UK market have been purchasing mortgage books where they can to further increase their market share. Starling bank recently purchased mortgage loans valued at £500m from Masthaven following the purchase of Fleet mortgages last year.

Having a large specialist lender could mean new business for Barclay's mortgage arm the Woolwich. Clients in the specialist market don't want to stay there too long, largely as the rates are less favourable than with high street lenders. Those clients that switch from non-conforming to conforming with Kensington may find the partnership with Barclays offers the best deal for them to find a way back to the high street lender and more favourable rates.

Then there is the Intellectual Property and IT platform. Barclays as an old lender has older, legacy systems that are difficult to replace, Kensington has more modern systems and no doubt a lot of valuable insights from data that could offer benefits.

There are likely more benefits but you get the idea. All that aside Kensington are a successful £1bn per year lender and that should continue as long as Barclays don't do anything to affect that.

What about existing customers?

Given Barclay's currently stated intention is to let Kensington operate as normal, there should be no impact at all for customers. Equally, I can't see there being any immediate benefit for them.

The future?

The deal is not done yet until regulatory approval is given later in the year. Once that happens and some additional time has passed we will see how Barclay's influence helps or hinders Kensington. More to follow!

Lee Wisener CeMAP, CeRER, CeFAP, CSME

Having worked in the mortgage industry for over 20 years I have always wanted to build a website dedicated to the subject. Also being a geek when it comes to the internet all I needed was time and I could both build the site from scratch and fill it with content. This is it!